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Loan insurance ban is "brave" and will "prevent financial misery for millions"

13 November 2008 / by Rachel Mason

The Competition Commission's decision to address the unfairness and lack of competition in the Payment Protection Insurance market is welcomed, according to Simon Burgess, whose company is one of the UK's leading providers of PPI.

Mr Burgess, managing director of britishinsurance.com – provider of income payment protection insurance, mortgage Insurance, and loan payment protection insurance says it is about time something was done about the unjust PPI system.

"The reality is that the PPI market is dysfunctional and is operating to the detriment of consumers," he said.

According to the CC, distributors of Payment Protection Insurance (PPI) "face little or no competition when selling PPI to their credit customers," and it today announced a series of proposed measures to increase the competition in the loan Insurance market.

The CC's research shows that more than 13 million PPI policies are sold to customers by the loan provider when they take out a loan or other credit and that many people are unaware they can buy PPI from other providers, and this has created an unfair market.

Consumers "rarely shop around to compare prices and terms and conditions of PPI policies and rarely switch PPI providers," says the CC.

Loan providers themselves have a major advantage because their 'point of sale' position means it is hard for other loan insurance providers to compete for the business, and this says the CC, means that "PPI distributors are able to charge high prices."

In response to its findings, the CC is proposing a series of measures to combat the lack of competition in the PPI market.

The first is a ban on the sale of PPI by a distributor to a customer within 14 days of the distributor selling credit to that customer, which the CC says will address the point of sale advantage and give customers the opportunity to compare loan insurance policies.

The CC also wants credit providers to provide a ‘personal PPI quote’, to each customer which will "clearly state the cost of the PPI policy individually and when added to the credit product."

The measures would also see a ban on the sale of single-premium PPI policies, which it claims "act as a barrier to customers switching and the costs of which are difficult to compare with other PPI policies."

The CC also wants to see more transparency in the loan insurance market, with all PPI providers to provide clear messaging about their products and information to the FSA about their loan insurance services which the FSA will then be able to collate into PPI comparison tables.

Unsurprisingly, the CC's proposals have not gone down well with many PPI providers, with the ABI calling it 'devastating news for borrowers,' and claiming the CC has got it "completely wrong."

"We understand that poor sales practices are never acceptable and we will continue to work with the Commission to resolve the outstanding issues in the PPI market. However, if the Commission continues down this path it will kill the PPI market altogether, leaving millions of consumers with no protection at all," said Nick Starling, the ABI's Director of General Insurance and Health.

While the BBA claims the CC has "gone well beyond its remit and the evidence it has which shows customers will only consider taking cover when they borrow and not afterwards."

But Simon Burgess, says the CC should be commended for its proposals, "These measures will prevent the financial misery of millions of families. It is a brave step by the CC and much welcomed."

"Bad practice has been rife in the PPI market for years. Not only are consumers being sold complex policies that they don't understand, in many cases, they are not aware they can buy PPI elsewhere and some people are even misled into thinking getting PPI is a condition of the loan agreement.

"The CC is taking a stand; it is not banning PPI altogether, it is simply trying to create a fairer system and this can only be good for the consumer," she said.

The CC will now allow interested parties to comment on the proposals before it publishes its final report, currently planned for mid-January 2009, which will include a final decision on which measures are to be introduced.